ESG integration and disclosure on the rise in China

Fidelity finds more than 250 listed companies in the country have published sustainability strategies or plan to do so

More than half (53%) of companies in China have publicly announced an ESG or sustainability strategy, while close to 30% of them say they are addressing sustainability issues internally, according to a report by Fidelity.

The remaining 18% have plans to publicly announce their strategies in the future, the report, China’s ESG priorities: How companies in China are approaching ESG, found.

“The survey results actually confirm or affirm my own understanding of what’s happening on the ground, and it’s that ESG adoption is on the rise in China,” said Tina Chang, associate director, sustainable investing at Fidelity.

Fidelity found similar results when it came to disclosure, with almost two-thirds (64%) of Chinese companies disclosing ESG factors in their reports annually, and 29% planning to do so in the near future.

“The quality of the reporting does vary quite widely from company to company, and so do the sophistication level of the ESG strategies that has been announced. That said, it is still a positive trend that we’re seeing on the ground,” Chang added.

Fidelity conducted a survey based research covering a total of 262 listed companies across all industries in China, with the respondents mostly senior executives from various functions, including ESG, finance, investor relations and operations.

While the development of ESG strategies in Chinese listed companies might still have further to go to reach global standards, Chinese customers and shareholders are increasingly impacting the sustainability progress of companies.

The most voted reason to develop an ESG strategy was to meet customers’ expectations (47%), followed by 44% to meet investors’ expectations and 37% to meet government initiatives.

“This coincides with our observation that as the nation’s capital market matures, an increasing number of investors have started to take an active stewardship approach to clearly communicate expectations with investee companies, putting the market on the right track to continuing ESG advancement.”

Sophistication is improving

To align their ESG strategies to business strategies, companies are using more sophisticated tools, the survey found.

For instance, 66% of the companies surveyed consulted key stakeholders to align their ESG plans with their own objectives or conducted a materiality assessment to determine which ESG goals to focus on.

On the other hand, 56% of them hired professionals such as ESG advisers or consultants when stipulating their sustainability strategies, according to the survey.

Fidelity also noted that the green finance market has also expanded rapidly with local asset managers accelerating their ESG integration.

Back in 2018, fewer than 10 local asset managers had signed up with the United Nations’ Principles for Responsible Investment, and that number has jumped to 95 this year, Fidelity noted.

The results echo by an earlier survey from Barclays, which also showed that regulation is driving more organisations to be better at emissions disclosure and more are introducing interim decarbonisation targets.

China has been making steady efforts in terms of ESG disclosures in recent years. In June 2022, the China Enterprise Reform and Development Society published voluntary ESG disclosure guidelines aimed at establishing uniform disclosure practices that are uniquely tailored to China-focused ESG priorities.

Although compliance with the guidance is voluntary, Xiaolin Chen, head of international, KraneShares has seen an increasing number of companies in China disclosing their ESG policies.